Yesterday, the world’s best-known cryptocurrency experienced a tumultuous pullback. Bitcoin shed a good 10% to touch an intraday low at $11,163. It’s only been two weeks since we witnessed bitcoin hitting an 18-month high above $13,000. However, these kinds of boom-and-bust periods are not completely new to the cryptocurrency space but today’s drop was a big blow.
Fundstrat’s Tom Lee was quick to give some insight on what might have caused the parabolic drop and reminding us that bitcoin remains bullish in the long run.
He tweeted:
“Important to step back and focus on the bigger picture and long-term frames on #bitcoin
-painful $2k drop in past day, partially due to federalreserve Powell comments @facebook #Libra
– drop invisible on weekly timeframe
Crypto winter over”
Albeit correlation is definitely not causation, analysts have attributed bitcoin’s drop to Fed’s Chairman, Jerome Powell criticism of Facebook’s Libra. Jerome called for a halt on Libra development until ‘serious concerns’ are addressed. He said, “Libra raises serious concerns regarding privacy, money laundering, consumer protection, and financial stability.” What followed after this announcement was a swift correction downwards.
Are Jerome’s Comments On Libra To Blame For Bitcoin’s Recent Pullback?
Analysts have been bullish on Libra based on the fact that it could certainly pave the way for massive adoption of cryptocurrencies. When it was unveiled on June 18th, bitcoin experienced an upsurge of up to 75% in the following days, even nudging $14,000.
On Wednesday 10th, Jerome Powell testified at a hearing before the House of Representatives Financial Services Committee and criticized Facebook’s Libra. What ensued was a dip in the price of bitcoin. Some analysts believe that this drop was caused by Jerome’s comments about Libra. Some of these people include Fundstrat’s Tom who pointed out the correlation in his aforementioned tweet.
Another analyst who agrees that the recent plunge came on the heels of Fed’s Jerome comments is Craig Erlam, a senior market analyst at FX trading platform OANDA. As reported by Reuters, he said, “This is a direct response to the Powell testimony and comments on Facebook’s Libra and the implications that could have for the entire cryptocurrency space.”
Nonetheless, other analysts believe that the recent drop is solely due to bitcoin’s volatility. One such analyst is Mati Greenspan, the senior market analyst at eToro. He cited uncertainty on whether crypto traders were really monitoring Jerome’s comments, adding, “This sort of volatility is normal for bitcoin”
The Bottom Line
It is difficult to tell whether Fed’s Chair comments are to blame for the downtrend witnessed but the timing here is more than enough to arouse suspicion. However, despite the sharp drop, Tom Lee notes that the plunge barely registered on bitcoin’s weekly timeframe, as shown in his tweet. At press time, it seems as though bitcoin is slowly recovering and we might be seeing an upswing soon.
